In a Landmark Class Action Case, Federal Judge delivers Death-Blow to United HealthCare’s “cross-plan offsetting” practice calling it a “troubling use of plan assets”, and ruling the industry standard practice of “Cross‐plan offsetting creates a substantial and ongoing conflict of interest” for all claims administrators who “simultaneously administer both self‐insured and fully insured plans.” The court also called into question United’s practice of reaching “into the pockets of the sponsors of self‐insured plans”and putting that money “in United’s pocket”.

In an extraordinary decision, US District Judge Patrick J. Schultz has effectively barred cross-plan offsets. The judge weighed in on two very important questions: First, whether UHC acted “reasonably” in interpreting its client’s plans to permit cross‐plan offsetting; and whether the practice complies with the “fiduciary duties imposed by ERISA”. The court offered an answer to both issues while providing very clear guidance for Plans, claims administrators, medical providers and patients.

As we have written about many times before, the No. 1 health care claims denial in the country is “overpayment” recoupments through “Cross-Plan Offsets”; correspondingly, the No.1 hidden cost for Self-Insured health plans, is “Overpayment” recoupment through “Cross-Plan Offsets” and subsequent embezzlement of plan assets. With the new legal guidance this landmark case provides, will self-insured plan sponsors, like AT&T and Gap Inc.be held accountable to allowing United to engage in such ERISA violations such as embezzlement, self-dealing and breach of fiduciary duty?

In answering the first question, Judge Schultz considered whether the language in UHC’s client health plans at issue in the case, identified as 46 Plan Bs, authorized UHC to engage in the offsetting practice known as “Cross-Plan Offsets”. According to the court they did not: “the Court finds that United’s interpretation is unreasonable. The plans themselves do not authorize cross‐plan offsetting. To the contrary, most of the plans contain specific overpayment and recovery language that would be rendered meaningless if United was authorized by the generic clauses that it relies upon to engage in cross‐plan offsetting.”

The court went on to clarify: “Every one of the overpayment provisions is triggered only when the plan itself makes an overpayment…In other words, each Plan B authorizes the recovery of overpayments made by the Plan B.

“None of the overpayment…provisions contain any language allowing other plans to recover their overpayments from the plan. “In other words, not one Plan B authorizes recovery of an overpayment made by a Plan A.”, according to the court order.

Regarding the second question, whether the practice of cross-plan offsetting violates ERISA, the judge, while weighing possible conflicts of interest in violation of ERISA, went so far as to mention the fact that UHC lined its own pockets with self-insured plan assets: “the money that reimburses United for its alleged overpayment comes out of the plan sponsors’ pockets. Several internal United documents emphasize this point and gush about how cross-plan offsetting will allow United to take money for itself out of the pockets of the self-insured plans…”

“In other words, every one of the cross‐plan offsets at issue in this litigation put money in United’s pocket, and most of that money came out of the pockets of the sponsors of self‐insured plans.” according to the court records.

The court went into great detail regarding UHC’s conflict and possible prohibited transaction and breach of fiduciary duty: “In light of this case law and the strict fiduciary duties imposed by ERISA, cross-plan offsetting is, to put it mildly, a troubling use of plan assets—one that is plainly in tension with “the substantive or procedural requirements of the ERISA statute . . . In stark terms, cross‐plan offsetting involves using assets from one plan to satisfy debt allegedly owed to a separate plan—a practice that raises obvious concerns under §§ 1104 and 1106. These concerns are particularly acute in this case, in which every offset that United orchestrated did not just benefit a different, unrelated plan, but benefited United itself.”

“Cross‐plan offsetting creates a substantial and ongoing conflict of interest for claims administrators who, like United, simultaneously administer both self‐insured and fully insured plans…”, according to court records.

Remarkably, the judge chided UHC for or creating its cross-plan offsetting process for its own benefit and without examining the language of the plans. The judge specifically drew attention to this point, according to the court order: “It should be noted, that in looking carefully at the language of the plans…the Court is doing something that United itself did not do before implementing cross-plan offsetting…”

“Only after getting sued did United hunt through the plans for any language that might provide a post hoc justification for its conduct…United admits that it was not able to find a single provision of a single plan that explicitly authorizes cross-plan offsetting.”, according to court records.

The judge also questioned whether UHC ever disclosed their intention to engage in “cross-plan offsets” or the likely conflict of interest to its plan clients: “It appears, however, that disclosures concerning United’s system of cross-plan offsetting are mostly or entirely handled by United’s banking team during what appear to be fairly technical explanations for banking, account-setup and account-funding processes. It also appears that such disclosures mostly occur orally and on a somewhat ad hoc basis”.

In ruling against UHC on almost every argument, the judge certified the case for immediate appeal, acknowledging that this was a landscape changing and “exceptional case,” and taking into consideration that United, as the nation’s largest insurer will have to “undertake the extremely expensive and disruptive process if unwinding its cross-plan offsetting practice.”

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